1. Why trial balance is balanced?

2. Two Type of question Deal with only transaction Deal balances and transaction

3. Simple example: Transaction only Sales by cash 200 Sales by bank 400 Purchase by bank 300 Purchase by cash 100 Instruction: Draw a trial balance

4. Simple example: Transaction only Journal Entries DebitCredit Cash200 Sales200 Bank400 Sales400 Purchase300 Bank300 Purchase100 Cash100

5. Simple example: Transaction only Calculate the total, as you notice, it’s balanced because every transactions involve two items DebitCredit Cash200 Sales200 Bank400 Sales400 Purchase300 Bank300 Purchase100 Cash100 1,000

6. Simple example: Transaction only Re-arrage the items, so the same item located closely DebitCredit Cash200 Cash100 Sales200 Sales400 Bank400 Bank300 Purchase300 Purchase100 1,000

7. Simple example: Transaction only Summarise the same items, plus the same side, minus the other side DebitCredit Cash200 Cash100 Sales200 Sales400 Bank400 Bank300 Purchase300 Purchase100 1,000 200+400=600 200-100=100 400-300=100 100+300=400

8. Simple example: Transaction only Notice actually you have prepared a simple TRIAL BALANCE DebitCredit Cash100 Sales600 Bank100 Purchase400 600

9. Next, question deals with balances and transaction

10. Simple example: Balances and Transactions The most important rule for BALANCES is they must be BALANCED between debit and credit

11. Simple example: Balances and Transactions Lets assume previous example as the balances, notice that the credit and debit are balanced.. DebitCredit Cash100 Sales600 Bank100 Purchase300 Inventory100 600

12. Simple example: Balances and Transactions Then, we want to include these two simple transactions -Sales by Cash RM 200 -Purchase by Bank RM 50

13. Simple example: Balances and Transactions From the previous balances, we can just make a simple change DebitCredit Cash100 Sales600 Bank100 Purchase300 Inventory100 600 + 200 = debit cash credit sales = 200 + - 50 = credit bank + 50 = debit purchase

14. Simple example: Balances and Transactions -if the transaction include both side  both increase or decrease -if the transaction only involve one side  one must increase, the other must decrease DebitCredit Cash100 Sales600 Bank100 Purchase300 Inventory100 600 + 200 - 50 + 50

15. Simple example: Balances and Transactions Congratulation, you have prepared the TRIAL BALANCE DebitCredit Cash300 Sales800 Bank50 Purchase350 Inventory100 800

16. Notes Of course in real life there will be much more complicated than this, that’s why we need to prepare ACCOUNT LEDGER ENDING INVENTORY is not included in trial balance because it has no double entry and not included in balances ALL THE BALANCES MUST BE INCLUDED IN TRIAL BALANCE even though they has no change

17. About Beginning Balance (balance b/d) Profit and loss item like sale and purchase has no beginning balance after you prepare income statement and post it to balance sheet (in the beginning of accounting period)

18. About Beginning Balance (balance b/d) But, if you want to open t-account for sales and purchase and you notice there is balances in current period before preparing income statement, you need to include balance b/d in sales or purchase Therefore, if there is balance for sale, you need to put balance b/d when you open sales t-account